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Bed Bath & Beyond Inc BBBY

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Bed Bath & Beyond Loses Traction in Turnaround Plan, but Gross Margin Holds Firm; Shares Undervalued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We don’t plan any material change to our $23.50 fair value estimate for no-moat Bed Bath & Beyond after incorporating third-quarter results into our model. While recent results knocked a few dollars off our intrinsic value, the reduction of our long-term tax rate forecast to 23% (from 27%) offset the downside. Quantitative proof of progress in the company’s turnaround largely escaped the period, with comparable sales falling 7% (and the namesake business down 10%), deleverage of selling, general, and administrative costs (by 320 basis points to 37%), and an adjusted EPS loss of $0.25 (versus guidance of $0.00-$0.05). A bright spot was the gross margin, which expanded 50 basis points to 35.9% and 360 basis points over 2019, helped by pricing and mix. The firm offered a weaker-than-expected full-year outlook for $7.9 billion in sales (from $8.1 billion-$8.3 billion prior) and EPS of negative $0.15-$0 (from $0.70-$1.10).

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Company Profile

Business Description

Bed Bath & Beyond is a home furnishings retailer, operating just under 1,000 stores in all 50 states, Puerto Rico, Canada, and Mexico. Stores carry an assortment of branded bed and bath accessories, kitchen textiles, and cooking supplies. In addition to 809 Bed Bath & Beyond stores, the company operates 133 Buy Buy Baby stores and 53 Harmon Face Values stores (health/beauty care). In an effort to refocus on its core businesses, the firm has divested the online retailer, One Kings Lane, Christmas Tree Shops and That (gifts/housewares), Linen Holdings, and Cost Plus World Market.

650 Liberty Avenue
Union, NJ, 07083
T +1 908 688-0888
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Nov 30, 2021
Fiscal Year End Feb 27, 2022
Stock Type Distressed
Employees 37,600